from the will-prices-drop? dept

Judge Denise Cote wasted no time at all in approving the DOJ's settlement with three book publishers in its antitrust lawsuit over ebook pricing. While there had been some concerns about the settlement, the judge saw no problem with it at all, and very quickly issued an order approving the settlement (pdf) between the government and HarperCollins, Simon & Schuster and Hachette (the case against others, and Apple continues). The terms of the settlement are straightforward:

They must terminate their Agency Agreements with Apple
within seven days after entry of the proposed Final
Judgment.

They must terminate those contracts with e-book retailers
that contain either a) a restriction on the e-book
retailer’s ability to set the retail price of any e-book,
or b) a “Price MFN,” as defined in the proposed Final
Judgment, as soon as each contract permits starting thirty
days after entry of the proposed Final Judgment.

For at least two years, they may not agree to any new
contract with an e-book retailer that restricts the
retailer’s discretion over e-book pricing.

For at least five years, they may not enter into an
agreement with an e-book retailer that includes a Price
MFN.

Cote basically said that this is a perfectly straightforward price fixing case, and the settlement directly counteracts the price fixing issues, so there's no reason not to just move forward with it.

The Complaint and CIS provide a sufficient factual
foundation as to the existence of a conspiracy to raise, fix,
and stabilize the retail price for newly-released and
bestselling trade e-books, to end retail price competition among
trade e-books retailers, and to limit retail price competition
among the Publisher Defendants. Although the Government did not
submit any economic studies to support its allegations, such
studies are unnecessary. The Complaint alleges a
straightforward, horizontal price-fixing conspiracy, which is
per se unlawful under the Sherman Act....
The Complaint also details the defendants’ public statements,
conversations, and meetings as evidence of the existence of the
conspiracy. The decree is directed narrowly towards undoing the
price-fixing conspiracy, ensuring that price-fixing does not
immediately reemerge, and ensuring compliance. Based on the
factual allegations in the Complaint and CIS, it is reasonable
to conclude that these remedies will result in a return to the
pre-conspiracy status quo. In this straightforward price-fixing
case, no further showing is required.

Because of this, Cote rejects the idea of any evidentiary hearing and just approves the deal. She notes that due to tons and tons of public comments that were allowed in the case, she is quite well informed of the issues and sees no additional benefit from such a hearing:

It is not necessary to hold an evidentiary hearing before
approving the decree. Given the voluminous submissions from the
public and the non-settling parties, which describe and debate
the nature of the alleged collusion and the wisdom and likely
impact of settlement terms in great detail, as well as the
detailed factual allegations in the Complaint, the Court is
well-equipped to rule on these matters. A hearing would serve
only to delay the proceedings unnecessarily.

She does try to summarize the comments against the settlement into four broad categories: (1) that the settlement would harm third party players like indie book stores, indie ebook retailers, indie publishers and authors, (2) that the settlement is "unworkable," (3) that there weren't enough facts to support the price fixing claim, (4) that the impact of such price fixing was actually pro-competition, in that it broke up Amazon's market dominance. She then breaks down each of these arguments to show why none of them apply and the settlement should move forward.

I won't go through all four issues, but I would like to focus on the two that get the most attention, the first and the last. On the first issue, she points out that antitrust law is not designed to protect businesses from the working of the market, but to protect the public from the failure of the market. If the settlement causes some businesses to suffer, but it's in the public interest, there is no problem there.

If unfettered e-books retail
competition will add substantially to the competitive pressures on physical bookstores, or if smaller e-book retailers are
unable to compete with Amazon on price, these are not reasons to
decline to enter the proposed Final Judgment.

As for the last issue (breaking up Amazon's dominance), she notes that it was "perhaps the most forceful species of criticism" but still does not find it persuasive here. The court more or less notes that Amazon's market position isn't on trial, and its use of wholesale pricing does not equal price fixing, as some have alleged. Nor does it show "predatory" pricing, which was a key complaint. The problem there: the evidence showed that Amazon was "consistently profitable." And, to show predatory pricing, "one must prove more than simply pricing below an appropriate measure of cost" but also that the company will jack up prices down the road. And all of the comments failed to do that:

None of the comments demonstrate that either
condition for predatory pricing by Amazon existed or will likely
exist. Indeed, while the comments complain that Amazon’s $9.99
price for newly-released and bestselling e-books was
“predatory,” none of them attempts to show that Amazon’s e-book
prices as a whole were below its marginal costs.

Oh, and finally, the court points out that swinging back the blame to Amazon is meaningless for the purpose of this case, anyway, because even if the court accepted that Amazon was price fixing too, that doesn't make it okay for the publishers to price fix themselves. Think of it as the "two wrongs don't make a right" rule.

Third, even if Amazon was engaged in predatory pricing,
this is no excuse for unlawful price-fixing. Congress “has not
permitted the age-old cry of ruinous competition and competitive
evils to be a defense to price-fixing conspiracies.” ... The familiar mantra regarding
“two wrongs” would seem to offer guidance in these
circumstances.

This probably does not bode well for the other publishers and Apple who are fighting the whole thing...